What is Revenue Recognition? Revenue recognition is an accounting principle that outlines the specific conditions under which revenue is recognized. In theory, there is a wide range of potential points at which revenue can be recognized. The follwong guide addresses recognition principles for both IFRS and U.S. GAAP. Conditions for Revenue Recognition According to the…
What is Customer Profitability Analysis? Customer Profitability Analysis is a tool from managerial accounting that shifts the focus from product line profitability to individual customer profitability. Activity Based Costing looks at the various cost drivers to accurately isolate costs and determine a product’s profitability. In contrast, Customer Profitability Analysis is a method of looking at…
What are Inventoriable Costs? Inventoriable costs, also known as product costs, refer to the direct costs associated with the manufacturing of products and in getting them ready for sale. Often, inventoriable costs include direct labor, direct materials, factory overhead, and freight-in. Once a product is sold to a customer or disposed of in another way,…
What is Accounting Rate of Return? Accounting Rate of Return is the average net income an asset is expected to generate divided by its average capital cost, expressed as an annual percentage. It is a formula used to make capital budgeting decisions. The accounting rate of return is used in situations where companies are deciding…
What is Progressive Tax? A progressive tax is a tax system that increases rates as the taxable income goes up. It is usually segmented into tax brackets that progress to successively higher rates. For example, a progressive tax rate may move from 0% to 45%, from the lowest and highest brackets, as the taxable amount…
What is an Expenditure? An expenditure represents a payment with either cash or credit to purchase goods or services. It is recorded at a single point in time (the time of purchase), compared to an expense that is recorded in a period where it has been used up or expired. This guide will review the…
What is Lessor vs Lessee? There are two main parties in a lease agreement, and every finance professional needs to know how to differentiate between the lessor vs lessee. A lease is a contractual arrangement where one party, called the lessor, provides an asset for use by the other party, referred to as the lessee,…
What is Ancillary Revenue? Ancillary revenue is income a company generates from selling goods and services that are not a primary revenue stream or core business operation. For example, a sporting arena is known for selling tickets to games and other events held in the space. In this case, ancillary revenue would come from concession…
What is Differential Cost? Differential cost refers to the difference between the cost of two alternative decisions. The cost occurs when a business faces several similar options, and a choice must be made by picking one option and dropping the other. When business executives face such situations, they must select the most viable option by…
What are the Main Types of Assets? An asset is a resource owned or controlled by an individual, corporation, or government with the expectation that it will generate a positive economic benefit. Common types of assets include current, non-current, physical, intangible, operating, and non-operating. Correctly identifying and classifying the types of assets is critical to…
